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Week in Review 12.13.2019

Week in Review

Week Ending: Friday, December 13, 2019

Recap & Commentary

The S&P 500 ended at a new record high, following a week that featured a little bit of everything- trade, monetary policy, and politics- and served as a microcosm of the entire year.At the start of the week, the White House and House Democrats announced a deal to allow the U.S. Mexico Canada (USMCA) trade agreement to move forward. The House might now vote to ratify the deal before the end of the year.

On Friday, the U.S. and China agreed to a “Phase One” trade deal which, among other stipulations, calls for China to increase its purchases of U.S. goods and services by $200B over the next two years. In exchange, the U.S. agreed to suspend a new 15% tariff on $160B of Chinese goods set to take effect on December 15, and cut by half its 15% tariff on $120B of Chinese goods that went into effect on September 1. The deal is expected to by signed in early January.

As expected, the U.S. Federal Reserve left rates unchanged following its December meeting. Speaking afterwards, Fed Chair Jay Powell indicated that the Fed is unlikely to increase rates in the near term as he would want to see inflation that is “persistent and that’s significant” before doing so.
In Europe, the ECB had a similar message following its December meeting, saying that rates would remain at current levels, or lower, until inflation moves significantly closer to its 2% target.

U.S. political headlines were dominated by ongoing impeachment proceedings as the House Judiciary Committee passed two articles of impeachment against President Trump, setting up a vote in the full House this week. In Europe, Britain’s Parliamentary elections delivered PM Boris Johnson a resounding win and the “mandate” he was seeking to move forward with Brexit. Following the election, Johnson said “We will get Brexit done on time on the 31st of January — no ifs, no buts, no maybes.”

Economic Bullet Points

Consumer Inflation — Core CPI rose 0.2% in November, matching consensus. Over the past year, core CPI is up 2.3%. That is toward the top end of this cycle’s range, but it’s unlikely to move the FOMC away from its easing bias.Business Inflation — Core PPI fell -0.2% in November, which ran contrary to the expected 0.2% gain. Y/Y, core PPI eased to 1.3%, the least since Feb. 2017.

Retail Sales rose 0.2% in November, below the consensus of 0.5%. Vehicle and gas station sales accounted for most it, up 0.5% and 0.7%, respectively. Excluding these two categories, retail sales were flat. On a y/y trend basis, retail sales were up 3.5%, which is better than the pace early this year, but worse than the average in 2018.

Small Business Optimism — The NFIB Small Business Optimism Index rose 2.3 points to 104.7, marking the largest increase since May. Small business owners feel better about the overall economy and are looking to expand and hire more workers.

Of Note

Former Federal Reserve Chairman Paul Volcker, widely credited with taming high levels of inflation in the early 1980s, died at the age of 92.
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Market Indices Week of 12/13

S&P 5000.7%
Small Caps0.3%
Intl. Developed1.7%
Intl. Emerging3.6%
Commodities1.5%
U.S. Bond Market0%
10-Year Treas. Yield1.82%
US Dollar-0.5%
WTI Oil ($/bl)$60
Gold ($/oz)$1,474

The Week Ahead

  • Housing Starts
  • Existing Home Sales
  • Industrial Production
  • Personal Income and Spending
  • Consumer Sentiment

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